Kankanalapalli v Loesche Energy Systems Limited

Understanding when a contract of employment is legally formed is critical for employers and HR teams. The case of Kankanalapalli v Loesche Energy Systems Limited provides important guidance on what happens when a job offer is accepted but later withdrawn before the employee’s start date.

In this article, we break down the facts and the tribunal decisions. We’ll also look at what employers should take away when drafting offer letters and managing pre-employment conditions.

What is this case about? 

The facts will be familiar to many employers, in that the Respondent in this case withdrew a job offer prior to the Claimant starting work. This case is about what consequences, if any, flowed from this withdrawal. 

The facts 

The Claimant (Mr K) was offered a job by Loesche after an interview process. He was sent an offer letter which included proposed start date, salary, hours of work, holiday and bonus.

Subjects of Employment

The letter also said that the offer was subject to receipt of satisfactory references, a right to work check and the passing of a probationary period. They said that his contract of employment would be forwarded to him before the first day. Mr K emailed back to say that he accepted the offer. 

Withdrawing The Offer

Unfortunately, that first day never happened as the company subsequently said they were no longer able to offer the role. They withdrew the offer without paying any notice. At this point Mr K had not yet received the full contract of employment. 

The claim 

Mr K sued for breach of contract. His claim was that the offer followed by his acceptance of it created an initial contract and so withdrawing the offer without paying reasonable notice was a breach. 

Unformed Contract

The company’s position was that their offer had been a conditional one, namely the receipt of references, and so because they withdrew it before those references were received then it meant that a contract was not formed. In the alternative, since there was no notice period mentioned in the offer letter, then he should only be entitled to one week, that being the statutory minimum. 

The First Tribunal

The initial employment tribunal agreed with the company. It found that because the references (and right to work check) were conditions precedent to a contract, in other words they had to be successfully concluded before a contract could exist, then without them concluded there was no contract in existence at the point when they withdrew. 

The appeal 

Mr K argued that the original tribunal failed to appreciate that the conditions within the offer letter were ones that were subsequent to the contract formed, which he had accepted by email. 

The Employment Appeal Tribunal (EAT) agreed with Mr K. 

On the facts, they were persuaded by two things from the offer letter: 

1. Referenced Documents

A reference document with the offer letter sent to Mr K said,“I understand that my employment may be terminated without the provision of satisfactory references”. The EAT noted that this was different to saying that until these were provided then there was no contract. 

2. Conditions of the Contract

The right to work check, satisfactory references and successful probationary period conditions were grouped together in the offer letter. Since the probationary period condition logically had to be something subsequent to a contract, it indicated that the other two conditions could be interpreted in a similar way. 

Because of this the conditions were held to be subsequent to the contract and so the acceptance of Mr K to the original offer created a concluded contract of employment, albeit one that did not have an express notice clause. 

Notice 

The EAT decided that in the absence of any notice period at the time of entering into the contact, it was necessary to imply one. In other words, what would the parties have agreed, had they negotiated such a term.

Factors Changing the Case

Although the company argued for the statutory minimum of 1 week, and they pointed to such terms being issued by them as practice with others, the EAT were persuaded that the following factors meant that the amount should reasonably be higher: 

• That Mr K was travelling from another country to take up the role 
• That he had been in a selection process that had taken several months 
• That the role he had accepted was a senior one (and so he was unlikely to have accepted a notice period that had been offered to others in lesser roles than him) 

The EAT considered that the above pointed toward 3 months being a reasonable period of notice and awarded him damages to that amount. 

Conclusions

What can be taken from this is that the initial wording of an offer letter and/or package of documents sent to a prospective employee needs to be clear. It should outline what the intentions are when it comes to conditions.

If it is to be that no contract exists until and unless certain steps are satisfied then it needs to say so and if. As in this case, one or more of those steps are clearly subsequent to the contract then they need to be separated out from the pre-contract (precedent) ones. 

Whilst understandably it may be considered impolite to mention notice in an initial offer letter, had that letter to Mr K said something to the effect that either party could withdraw from the contract without notice prior to the start of employment then there would have been no necessity for a judge to imply any reasonable notice of 3 months. 

For those employers who normally use an offer letter which sets out various headline terms, the adding of such a clause regarding notice might not appear too harsh in practice. 

Mr K’s case can be viewed by clicking here. Learn more about employment law here.

Disclaimer: Chartergate Legal Services Ltd has drafted this article to provide you with a general overview of the relevant law and developments at the date of publication only. It is not a substitute for professional advice that is specific to your circumstances and should not be relied upon as such.